Report shows the high stakes of latest legal battle over Obamacare

People work with advisors in Miami to purchase health insurance under the Affordable Care Act at a store setup in the Mall of Americas. (Joe Raedle / Getty Images)

While the House GOP positions itself to sue the Obama administration for not implementing a mandate in the 2010 Affordable Care Act quickly enough, a D.C. Circuit Court of Appeals panel is mulling whether the administration implemented a second provision too broadly.

At issue in the appeal is the tax credits the law provides to help low- and moderate-income Americans buy health insurance policies through the new state exchanges. The Internal Revenue Service held that these subsidies would be available nationwide, but the plaintiffs in the case, Halbig vs. Burwell, contend that the law makes them available only in states that operate their own exchanges.

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A new report by the Robert Wood Johnson Foundation and the Urban Institute quantifies the stakes for the public in this fight. The report estimates that by 2016, the 34 states with federally operated exchanges will have nearly 11.8 million customers. Of those, 7.3 million — more than 60% — would be subsidized with tax credits worth more than $36 billion.

Those closest to the federal poverty line receive subsidies not just for their monthly premiums but also for their out-of-pocket costs. "Eliminating the subsidies means that many more residents of these states would face premium costs in excess of 8% of family income," the report states, "making coverage unaffordable for many of them, and increasing the number of uninsured."

If the plaintiffs prevail, some of those 34 states may take over their exchanges, preserving their residents' subsidies. "As a practical matter, however, many of these states would find such a change extremely challenging from an administrative, resource or political perspective," the report states.

The states with the most on the line, by far, are Texas and Florida. The report estimates that 1.1 million Texans and 931,000 Floridians would be receiving premium tax credits in 2016.

In 10 of the 34 states, the poorest of the residents left without subsidies might be able to fall back on their state's expanded Medicaid program. But Texas, Florida and 22 others did not expand their Medicaid programs, as called for under the 2010 law, to include single childless adults and families earning up to 138% of the federal poverty level.

Before you argue that cutting off subsidies would be a good thing for federal and state budgets, it's worth remembering that the uninsured don't go untreated. They still receive care when they really need it. They just do so from the most expensive supplier (the emergency room), with the costs passed on to taxpayers, people with private insurance and the well-off self-insured.

The report cited several spillover effects from a ruling that cut off subsidies in states with federally operated exchanges. The most alarming is the potential for a vicious cycle in the market for individual insurance policies. Many younger, healthier people could drop off the insurance rolls when the subsidies end, leaving insurers with a riskier pool of customers and higher average costs. They would respond by raising premiums, leading more healthy people to go without insurance and exacerbating the problem.

The Halbig case is a battle over how to interpret a statute whose goals clearly include extending health insurance to more Americans, yet whose text includes a provision that could be read to withhold vital subsidies from those unlucky enough to live in states that decide not to operate their own exchanges. A preliminary Senate version of the bill had explicitly limited subsidies to state-operated exchanges in an effort to prod states to take on that work. The congressional leaders most involved in the legislation say that they intended subsidies to be available to all, regardless of who operated their state's exchange. Advocates of the lawsuit argue that the lawmakers don't know what they're talking about.

The Times editorial board weighed in on the lawmakers' side last year, even as it wished, somewhat wistfully, that Congress would amend the law to make it clearer. That's not going to happen — certainly not before the D.C. Circuit rules, and probably not afterward either.